“Focus Should Be On Jobs”: Ben Bernanke Clearly Explained What’s Still Wrong With The Economy
In recent congressional testimony, Federal Reserve Chairman Ben Bernanke clearly explained what’s still wrong with the economy, outlined the Fed’s thinking on monetary policy and strongly implied that fiscal policy is still off base. His account and policy recommendations reflect mainstream economic thinking – and, thus, run counter to much of the economic doctrine that’s driving Republican budget policies.
Here’s how Bernanke sees the economy: though payroll employment has expanded by about 6 million jobs since its low point and unemployment has dropped by about 2.5 percentage points from its peak, the job market remains weak overall. I couldn’t agree more.
Bernanke points to the same indicators I would. The unemployment rate is still too high, too many of the unemployed have been looking for work for more than six months, too many people have stopped looking at all while job prospects remain dim, and nearly 8 million people are working part time even though they’d prefer full-time work. I’m glad to see him emphasize how “extraordinarily costly” this situation is:
Not only do [high levels of unemployment and underemployment] impose hardships on the affected individuals and their families, they also damage the productive potential of the economy as a whole by eroding workers’ skills and – particularly relevant during this commencement season – by preventing many young people from gaining workplace skills and experience in the first place. The loss of output and earnings associated with high unemployment also reduces government revenues and increases spending on income-support programs, thereby leading to larger budget deficits and higher levels of public debt than would otherwise occur.
While unemployment is still a major concern, inflation isn’t. Therefore, the Fed is appropriately interpreting its “dual mandate” to foster both “maximum employment” and “price stability” as requiring “a highly accommodative monetary policy.” That means keeping its short-term interest rate target as low as possible until unemployment falls closer to normal long-term levels and monitoring its program of purchasing longer-term assets – as long as inflationary expectations remain low. As the Fed notes, this policy carries some risks, but the risks and costs of continuing high unemployment are far greater.
Republicans, in contrast, want to remove “maximum employment” from the Fed’s policy concerns. They seem to see our most pressing problem as the possibility of future inflation, not the reality of current high unemployment. The Republican chairman of the Joint Economic Committee, where Bernanke testified, wants to replace the dual mandate with a single mandate for long-term price stability. Even some conservatives recognize that, during major recessions, that’s a recipe for disaster. An even more extreme policy – a return to a gold standard – made it into the 2012 Republican platform.
On fiscal policy, Bernanke recognizes that recent policy decisions have tilted too far toward short-term budget austerity, while largely ignoring longer-term budget challenges. He neither shared Republicans’ disdain for stimulus policies nor endorsed their flirtation with “expansionary austerity” arguments.
Federal fiscal policy, taking into account both discretionary actions and so-called automatic stabilizers, was, on net, quite expansionary [emphasis added] during the recession and early in the recovery. However, a substantial part of this impetus was offset by spending cuts and tax increases by state and local governments, most of which are subject to balanced-budget requirements, and by subsequent fiscal tightening at the federal level.
While too much fiscal restraint has hampered the economic recovery, policymakers have done little to address longer run fiscal challenges that will begin to reappear later in the decade. Bernanke’s counsel:
Importantly, the objectives of effectively addressing longer-term fiscal imbalances and of minimizing the near-term fiscal headwinds facing the economic recovery are not incompatible. To achieve both goals simultaneously, the Congress and the Administration could consider replacing some of the near-term fiscal restraint now in law with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run.
By contrast, the House Republican budget goes full bore on deficit reduction, starting immediately – jobs be damned.
By: Chad Stone, U. S. News and World Report, May 24, 2013
“It’s All Your Fault”: Federal Reserve Chair Calls Out Congress For Being The Drag On The Economy
The stock market is testing new highs, the unemployment rate is declining and consumer confidence is at a six-year peak, but the Federal Reserve chairman Ben Bernanke wants Congress to know that things could be a lot better.
Testifying Wednesday in front of the Joint Economic Committee of Congress, Bernake pointed out that the economy has been improving, but one obstacle is keeping a real recovery from sparking — them:
“Most recently, the strengthening economy has improved the budgetary outlooks of most state and local governments, leading them to reduce their pace of fiscal tightening. At the same time, though, fiscal policy at the federal level has become significantly more restrictive. In particular, the expiration of the payroll tax cut, the enactment of tax increases, the effects of the budget caps on discretionary spending, the onset of the sequestration, and the declines in defense spending for overseas military operations are expected, collectively, to exert a substantial drag on the economy this year.”
President Obama was able to delay serious austerity — tax increases paired with budget cuts — from coming into effect until this year. This delay has given housing a chance to recover, as evidenced by strong recent earnings from The Home Depot.
However, there’s no doubt that the payroll tax holiday, which Republicans never considered extending, is affecting every America who lives paycheck to paycheck. The sequester will take $85 billion and 750,000 jobs out of the economy this year. Even the ending of the Bush tax cuts on income over $400,000 will take some steam out of the economy, though tax breaks for the rich have the least stimulative benefit for the economy.
Bernanke points out that the biggest problem with the sequester is that it has no real effect on the actual problem this country faces — the long-term deficit.
“Although near-term fiscal restraint has increased, much less has been done to address the federal government’s longer-term fiscal imbalances,” he said. “Indeed, the [Congressional Budget Office] projects that, under current policies, the federal deficit and debt as a percentage of GDP will begin rising again in the latter part of this decade and move sharply upward thereafter.”
Basically, Bernanke is echoing what New York Times‘ columnist Paul Krugman has been saying for years: Get the economy going, then worry about long-term fixes.
By: Jason Sattler, The National Memo, May 22, 2013
“Not A Boon For Most Americans”: Congress Has Tackled The Deficit At The Cost Of The Economy
This morning, Eric Rosengren, chief executive of the Boston Federal Reserve, cautioned lawmakers against further fiscal retrenchment, lest they slow the recovery. As he said at the Global Interdependence Center’s Central Banking Conference in Italy: “Given the economic realities I would urge policymakers to consider scenarios where some elements of fiscal rebalancing take effect only after the economy has more fully improved.”
He’s right, in large part because Congress has already done a fair amount of deficit reduction. Beginning in 2011, with unemployment still high and the economy on a long, slow climb out of recession, Congress — led by a new Republican majority in the House of Representatives — moved to make big cuts in medium-term discretionary spending. It slashed $1 trillion with the Budget Control Act of 2011, and followed that with hundreds of billions more in spending cuts and tax increases with the fiscal cliff deal and sequester.
Now, as a result of this deficit reduction, the Congressional Budget Office projects a $642 billion budget deficit for fiscal year 2013, down $200 billion from its projection at the beginning of the year, and the lowest level of deficit spending since President Obama entered office. The near-term deficit projection also shows improvement; the CBO estimates a 2015 deficit of $378 billion. For Washington’s deficit hawks, this is cause for celebration. It’s a sign the federal government is on its way to a more sustainable debt load.
But this rapid deficit reduction is far less of a boon for most Americans, who have to live in an economy that’s been largely stalled by Congressional inaction. At 7.5 percent, unemployment is still too high, and there’s little sign of rapid improvement. According to most projections, joblessness won’t reach pre-recession levels for another three years.
Congress’ push for deficit reduction has a lot to do with this. As noted in the New York Times last week: “The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011.”
To put that in more concrete terms, 1.5 million more Americans would have jobs if not for Washington’s decision to pursue deficit reduction in the midst of a sluggish economy.
Unfortunately, news of successful deficit reduction is unlikely to result in any respite from new cuts or tax increases. The Obama administration still has its Social Security cuts on the table — as part of a potential “grand bargain” — and Congressional Republicans are gearing up to demand still more spending cuts in exchange for raising the debt ceiling.
Will Washington avoid endangering the still-fragile recovery with further deficit reduction? If the refusal to end or replace the sequester is any indication, I wouldn’t hold my breath.
By: Jamelle Bouie, The American Prospect, May 16, 2013
“Worsening Jobs Crisis”: America’s Middle Class Is Burning To The Ground, While Washington Fiddles With Scandal Nonsense
At last, some excellent economic news for folks long-mired in the stagnant labor market!
At least, those were the headlines recently trumpeted across the country. “Jobs Spring Back,” exclaimed a typical headline or report that companies added a better than expected 165,000 private-sector jobs in April. Wow — the thunderous, three-year boom of prosperity that has rained riches on Wall Street is finally beginning to shower on our streets, right?
Well, as dry-land farmers can tell you, thunder ain’t rain. Read beneath the joyful headlines hailing April’s uptick in job numbers, and you’ll see the parched truth.
For example, more than a third of working-age Americans are either out of work or have given up on finding a job. Also, last month’s hiring increase was almost entirely for receptionists, waiters, clerks, temp workers, car-rental agents and other low-wage positions with no benefits or upwardly mobile possibilities. On the other hand, manufacturing — generally the source of good, middle-class jobs — did not add workers in April and has cut some 10,000 jobs in the last year.
Especially problematic was the continued rise in underemployment — people wanting full-time work, but having to take part-time and temporary jobs. Underemployment is also pounding college graduates. While they’ve been more successful than non-grads at landing jobs, they’re not getting jobs that fit their career goals or even require the degrees they spent money and time to obtain. Indeed, many of those rental agents and restaurant employees you encounter hold four-year degrees, forcing everyone else to scramble for the few, even lower-paid jobs further down the skill ladder.
Meanwhile, the next graduating class is already beginning to flood into the labor market from colleges and high schools with nowhere to go.
In May, another headline shouted: “Stock Market Soars.” It expressed delight that the Dow Jones Average topped 15,000 for the first time in its history.
Yet this index of Wall Street wealth gives a totally false picture of our nation’s true economic health. Yes, the privileged few are doing extremely well. But the workaday many are struggling — and falling further and further behind as the jobs market sinks steadily from mere recession down into depression.
The monthly unemployment reports don’t tell the depths of misery that’s out here in the real world, beyond the view of Wall Street and Washington elites. For example, President Obama hailed the news that unemployment dipped to 7.5 percent in April. Unstated, though, was the stark reality that this good-news dip was not due to a jump in job offerings, but to a bad-news labor market so weak and discouraging that more and more Americans are dropping out of it or never entering it.
More than a third of our working-age population is no longer even in the job market, and only 58.6 percent of us are employed. Put the opposite way, 41 percent of the potential workforce is not working — about 102 million people. One more statistic, and it’s a chiller: More than one out of five American families report that, last year, not a single family member had a job.
Our people are trapped in a jobs crisis that is sucking the economic vitality out of our nation, but our leaders refuse even to acknowledge it, much less cope with it. In fact, corporate chieftains are deliberately exacerbating the crisis by hoarding trillions of dollars that ought to be rushed into job-creating expansions, and politicians keep adding to the casualties by gleefully eliminating the middle-class jobs of hundreds of thousands of teachers, firefighters, police and other valuable public employees.
America’s middle class is burning to the ground, while Washington fiddles with nonsense and Wall Street feathers its own nest. It’s disgraceful.
By: Jim Hightower, The National Memo, May 15, 2013
“The Incredible Shrinking Issue”: Lack Of Jobs, Not The Deficit, Is The Actual Scandal That Congress Should Be Trying To Grapple
Republicans gleeful over the recent slew of scandals afflicting the Obama administration – some imagined and some worthy of the name – should be thanking their lucky stars that they have new issues to wield as political cudgels. After all, their favorite of the last few years, the federal deficit, is getting smaller and smaller and smaller.
The Congressional Budget Office – Washington’s nonpartisan number crunchers – released new projections Tuesday showing that the deficit will fall to $642 billion this fiscal year, a 24 percent drop in its projection from just a few months ago. The improvement is primarily due to increasing revenue and fewer expected outlays to government-backed mortgage giants Fannie Mae and Freddie Mac.
If this holds, it will be the smallest the deficit has been since President Barack Obama took office. As a percentage of the economy, the deficit will have been cut by more than half over Obama’s first five years, from 10.1 percent in 2009 to 4 percent in 2013.
And the incredible shrinking deficit doesn’t stop there, falling to 2.1 percent of gross domestic product by 2015, which, as the New York Times David Leonhardt noted, is “a level many economists consider healthy.” (For comparison’s sake, the much-ballyhooed Simpson-Bowles budget plan called for a deficit in 2015 of 2.3 percent of GDP.) It’s also worth noting that the CBO assumes perpetual levels of both war spending in Afghanistan and aid for Hurricane Sandy victims, so the projections for future years will certainly be lower than they appear now.
This report is one more piece of evidence showing that the economic discussion that has gripped Washington recently is absurdly backwards. The short-term deficit is barely a problem, while the long-term issue for the nation’s finances remains, as everyone has known for years, spiraling health care costs (but there’s reason to believe they are also coming down).
What the dropping deficit has not done is spark the sort of economic growth or job creation that will bring down America’s still-too-high unemployment rate; lack of jobs, not the deficit, is the actual crisis with which Congress should be trying to grapple. In fact, as the Center on Budget and Policy Priorities’ Jared Bernstein notes, the deficit is coming down too fast considering the country’s current economic doldrums:
The deficit is falling quickly when it shouldn’t be and rising later when it shouldn’t be.
Certainly, if facts drove the day, this update would be a fire hose for the hair-on-fire austerity crowd re: the near-term deficit. The patient is checking out of the hospital while Drs Cantor, Ryan, and McConnell are still preparing for major surgery.
Considering that Republicans on the House Budget Committee claim that the CBO report “provided a fresh reminder of Washington’s out-of-control spending,” chances seem slim that those pushing austerity will change their tune anytime soon. So perhaps the silver lining in lawmakers focusing on what they see as today’s hottest “scandal-gate” is that it will distract them from doing any more to undermine the economic recovery or to cut a deficit that doesn’t need to be cut anymore.
By: Pat Garofalo, U. S. News and World Report, May 14, 2013
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